Natural Gas: "Glut May Grow as XTO, Devon Wells Prove Prolific" (DVN; XTO)

From Bloomberg:

The largest U.S. natural-gas producers may be doing too well at the wellhead for their own good, pumping so much of the heating and power-plant fuel that prices won’t soon recover from last year’s market collapse.

XTO Energy Inc. and Devon Energy Corp., two of the five largest producers of U.S. gas, yesterday reported record output and smaller declines in earnings than analysts estimated. Anadarko Petroleum Corp., London-based BP Plc and Chesapeake Energy Corp. previously reported second-quarter output gains that helped them beat estimates.

Even as they lament a gas glut, the companies have been reluctant to let revenue and profits fall further in the short term by being the first to curtail output. Second-quarter production at Fort Worth, Texas-based XTO jumped 32 percent, and Devon of Oklahoma City had a 12 percent gain.

“I think they might be cutting off their nose to spite their face here,” said Jim Byrne, an analyst at BMO Capital Markets in Calgary who rates Anadarko, Devon and XTO at market perform. “Everybody’s kind of worrying about themselves, and obviously that’s going to happen, but it doesn’t really bode well in our view, certainly for gas prices.”

The companies are pumping more gas than ever in the face of a demand slump and a supply surfeit that caused prices to plunge 72 percent from their 2008 high. U.S. gas supplies are 19 percent above their five-year average, driven by output from so- called shale plays. The U.S. Energy Department estimates that industrial gas demand will drop 8.2 percent this year.

Prices Drop

Gas for September delivery fell as much as 6.6 percent this morning on the New York Mercantile Exchange after the U.S. Energy Department reported a larger increase in supplies of the fuel last week than analysts predicted...MORE